Scientific Research and Experimental Development (SR&ED)
SR&ED stands for Scientific Research and Experimental Development. The Canada Revenue Agency (CRA) offers tax credit incentives and refunds for companies that perform Research and Development in Canada. The SR&ED program was created in the mid-1980's to encourage technical development in Canada, and each year it provides an average of over $3 billion to Canadian companies.
If you are developing new a technology, improving existing technology, products or processes, you could be eligible to receive tax credits or cash refunds under the SR&ED program. While many other countries have similar programs, Canada's SR&ED program is one of the more lucrative of tax-incentive programs for companies performing research and development.
Benefits of SR&ED
Qualified Canadian Controlled Private Corporations (CCPC’s) can receive up to 35% back of eligible expenditures incurred in the development of new or improved products or processes. Foreign owned or public corporations can qualify for a 20% tax credit (this will change to 15% in 2014) on eligible expenditures.
Most Canadian provinces offer additional tax credits on qualified SR&ED expenditures. Depending on the province, SR&ED claimants can earn additional provincial SR&ED tax credits. Read more about provincial tax credits to find out your province's rate of return.
The funds that you receive from the SR&ED program can be invested back into your business in the form of new equipment, new hires, expanding your facilities, taking on more challenging projects, or paying down debts.
SR&ED Federal Budget 2012 Changes
The 2012 federal budget made some changes to the SR&ED program which include: no SR&ED capital expenditures (2014 onwards), proxy reduced to 55% (phased in by 2014), subcontracts reduced to 80% (2013 onwards) and non-CCPC ITC’s to be 15% (2014 onwards).
The following charts are representative of the changes:
Example for SR&ED Expenditures
|Calculation of Qualified SR&ED Expenditures||Before||After|
|Overhead (via Proxy: 65% of T4 Labour)||$292,500||$247,500|
|Materials Destroyed + Transformed||$107,500||$107,500|
|Total Qualified Expenditures||$1,000,000||$925,000|
Example for Calculating Tax Credit (CCPC)*
|Ontario – ORDTC (4.5%)||$45,000||$41,625|
|Ontario – OITC (10%)||$95,500||$88,338|
|Federal – ITC (35%)||$300,825||$278,263|
|Total SR&ED Benefit For You (44.1%)||$441,325||$408,226|
* CCPC – Canadian Controlled Private Corporation
Example for Calculating Tax Credit (non-CCPC)
|Ontario – ORDTC (4.5%)||$45,000||$41,625|
|Federal – ITC (20/15%)||$191,000||$132,506|
|Total SR&ED Benefit For You (23.6%/18.8%)||$236,000||$174,131|
SR&ED Policy Changes
As of December 19, 2012, the CRA has put into effect new policy changes to the SR&ED program which will affect the eligibility of work for SR&ED. The new policy document further elaborates on the three criterions which included: (1) scientific or technological advancement, (2) scientific and (3) technological content and scientific or technology uncertainty. In addition, the document presents five questions that have been established by the courts to provide a logical order for the assessment of SR&ED eligibility and include:
- Was there a scientific or a technological uncertainty—an uncertainty that could not be removed by standard practice?
- Did the effort involve formulating hypotheses specifically aimed at reducing or eliminating that uncertainty?
- Was the adopted procedure consistent with the total discipline of the scientific method, including formulating, testing, and modifying the hypotheses?
- Did the process result in a scientific or a technological advancement?
- Was a record of the hypotheses tested and the results kept as the work progressed?
It is important to keep in mind that existing SR&ED documentation should be reviewed to confirm that the criteria asked by the five questions are addressed.
How NorthBridge Will Assist With SR&ED and Other Funding Programs
NorthBridge is a full-service professional engineering firm, which excels at working with you to make sure that you receive the best value from your SR&ED claim. We employ full-time engineers to assure the thoroughness of every claim that we complete, and that all eligible projects are included with your SR&ED claim.
NorthBridge has over 20 years of experience assisting companies with government funding programs. We will:
- Listen and discuss past, present and future project activities.
- Research and identify the appropriate and optimal government grant, tax incentive, loans, as well as private financing opportunities.
- Take a hands-on approach to the application process and address relevant program objectives and criteria.
- Become an in-house project manager for all types of government funding.
- Interview the key employees and ask specific questions in order to make the right funding decisions.
- Assist in writing the application and preparing all supporting documentation.
- Assist with government reporting requirements.
To arrange for a free, no obligation consultation with one of our government funding experts contact us at: firstname.lastname@example.org